How do I deduct intangible drilling costs on my taxes?

Resolved Question:

You may elect to deduct all, or a portion, of your share of intangible drilling costs currently or to capitalize all, or a portion, of the intangible drilling costs and amortize them ratably over a 60-month period beginning with the month or months the costs were paid or incurred.

You elect to deduct Intangible drilling costs as a current business expense by taking the deduction on your income taxreturn for the first tax year you have eligible costs. No formal statement is required. For oil and gas wells, your election is binding for the year it is made and for all later years.

If your interest is that of a limited partner, report your deduction or amortization amount of intangible drilling costs on a separate line in Part II of Schedule E to Form 1040, netting the deduction for intangible drilling costs which you elect to deduct or amortize against your income from the partnership.

If you are a partner or shareholder in an S corporation you will receive Schedule K-1 and use Schedule E for that income. You will report your deduction or amortization amount of intangible drilling costs on a separate line in Part II of Schedule E to Form 1040.

The IDC are an expense of the business and should be deducted against the business income (whether on Schedule C or Schedule E). If you are saying that you get a Schedule K-1 with zero income then the procedure described above applies for Schedule E.